New developments in August and September 2025 have brought prediction markets to the forefront of America’s decades-long struggle with gambling control. While most of the big players have avoided this as of yet, many are now entering the federally regulated sector, while New Jersey is facing oral arguments this month at the 3rd circuit Court of Appeals, which could reshape the extent of federal vs. state control.
FanDuel partnered with the Chicago Mercantile Exchange, a collaboration that may pave the way for federally licensed event contracts. DraftKings and PrizePicks have applied to the National Futures Association, thus initiating the federal process. Underdog Sports confirmed it would be the technology partner for Crypto.com’s first foray into prediction markets. Sporttrade is already licensed to operate as a sportsbook in New Jersey and has applied to become a federally recognized Designated Contract Market.
Meanwhile, operators like Polymarket and PredictIt obtained new licenses from the CFTC. These actions have put them at odds with state regulators who argue that prediction markets are merely another version of sports betting. New Jersey has thus been caught in a rapidly unfolding and highly consequential legal storm that has now reached the courts in Pennsylvania, where arguments are to be heard this month.
New Jersey has marketed its regulated model as the ideal in terms of consumer protection for a long time. DGE’s licensing, responsible gaming guardrails, and geolocation requirements to ensure bets are made within the state’s borders are strictly followed. Programs ranging from education to pensions are funded by tax and licensing fees.
Some of that is the framework of financial protections. Payment options with state-licensed casinos and sportsbooks should be safe and secure, and easy to understand. Interestingly, players tend to trust the same practices found in credit card casinos in the US, where deposits are immediate and backed up by banking-level encryption. Regulators have argued that these kinds of markets are trust-building processes that state-supervised federally licensed prediction markets cannot offer.
Prediction markets are platforms where people can trade contracts on the outcomes of various real-world events, such as elections or sports games. These contracts are legally under the Commodity Exchange Act and are regulated through the CFTC.
Proponents argue that prediction markets provide transparency and new options. Some critics, including many state regulators, say the contracts are essentially the same as wagers. This is estimated to be favored by the Trump administration. Kalshi’s board once included Brian Quintenz, President Trump’s appointee to lead the CFTC. Polymarket has been funded by Donald Trump Jr.’s venture capital firm, which poses the question of how serious federal law enforcement will be in supporting those markets when challenged by state law enforcement.
Few states have been affected more than New Jersey, which has one of the biggest sports betting markets. Kalshi, which holds a federal license to operate, is currently suing in New Jersey, Maryland, and Nevada to establish its sports event contracts as valid and available throughout the US.
In New Jersey, the Third Circuit is considering the matter. This month, judges will consider the cases, and their ruling has the potential to change the entire gambling scene. The state has contended that event contracts are gambling and therefore within its jurisdiction. Kalshi insists they are a distinct product approved at the federal level.
It has become a national story. Over 65 tribes signed an amicus brief concerned that prediction markets threaten tribal exclusive rights and sovereignty. Its effects could be felt outside of Atlantic City and may establish a precedent in the way states and tribes assert or defend their right to regulate.
New Jersey isn’t alone. In late August, the Ohio Casino Control Commission released a statement warning that any of its licensees who decide to participate in a federally sanctioned prediction market may jeopardize their Ohio gaming licenses. This was the first instance where a state regulator directly threatened operators in federally licensed territory with enforcement.
Ohio’s action has been referred to by experts as potentially setting the stage for responses in other states. While Ohio has taken a stand, New Jersey is letting the courts make the decision. This distinction highlights the quandary for operators attempting to weigh the uncertain prospect of federal approval versus the worth of state licenses.
A legal battle for New Jersey also means a financial one. Following the legalization of sports betting in 2018, the state has seen tax revenues in the billions, a large portion of which is allocated to public programs. There is concern among regulators that prediction markets would draw customers away from regulated, taxable betting operations, and thus revenue would dwindle.
Another issue is consumer protection. The Governor’s Responsible Gaming Task Force, whose final report came out in March of 2025, highlighted enhanced self-exclusion mechanisms, prohibitions on advertising, and independent oversight. The DGE has also added rapid sign-up and additional counseling options to its self-exclusion portal. State officials suggest there aren’t similar protections in federally regulated prediction markets.
